Reddit Intros New Ad Offering, 'Grows Up' and Says It Can Be as Big as Facebook

Marketers Will Be Allowed to Sponsor (Consenting) Redditors' Posts

Picture this: It's 2020 and Reddit is the third most downloaded app in Apple's App Store, rubbing shoulders with other behemoths like Snapchat and YouTube. Procter & Gamble just told shareholders it plans to spend $300 million to advertise on Reddit. And Reddit itself has more than one billion monthly active users, including your mother. She's been lurking in r/food for months, but today musters the courage to share her secret recipe for chipteh with the community. It's a hit.

And nobody is surprised by any of this because in this future, Reddit is as big as Facebook, both in its user base and ability to attract lucrative ad dollars from major brands.

At first thought, this future sounds ludicrously far-fetched. Today, Reddit's self-proclaimed user base of 240 million is seven times less than Facebook's. The company's desktop website has aged about as well as Craigslist and its user base -- aka redditors -- are notorious for calling out advertisers that try to pass themseleves off as the cool, hip brand that's mingling with today's youth.

But Reddit cofounders Steve Huffman and Alexis Ohanian say that future scenario could happen. They want to make Reddit as big as Facebook but better at giving advertisers an honest way to engage with their consumers.

"Reddit users don't like being bullshitted," Mr. Huffman, CEO at Reddit, said. "Reddit is a platform where you can call people out on it. And a lot of traditional advertising feels like we're being taken advantage of and nobody likes that. But when advertisers come with honest intentions we see a much higher level of engagement with the brand. We don't see hostility and we have valuable connections."

On August 4, Reddit will debut a new ad offering called Promoted User Posts, which will give marketers the ability to sponsor user generated posts on Reddit's platform. That means if someone creates a giant replica of a Taco Bell hot sauce packet, for example, and shares it on Reddit, the restaurant chain could step in and sponsor that post. In turn, Reddit will display it in different parts of its website and target specific users that the brand wants to reach.

"This isn't traditional display advertising," Mr. Huffman said. "This is different and more personable. You have to bring your A game here and if you do, it works amazingly."

Reddit will seek permission from the person who created the original post and should they accept, they'll receive a lifetime of Reddit Gold, a paid feature that grants extra benefits on the platform, but is mainly seen as an upvote on steroids.

The company will have a team of strategists who will work with brands like Coca-Cola and eBay, among others, to inform them of organic posts that have potential to become Promoted User Posts.

The move to generate revenue off user generated content will surely ruffle some feathers among Reddit users, but the company sees its move as an opportunity to introduce more brands to its community and platform.

"There are car enthusiasts on Reddit," Mr. Huffman said. "Makeup addicts, people who discuss movies, books and video games where these commercial relationships are already developing with our users. It is not a stretch for the advertiser to come in here and engage with our audience."

Reddit's other ad offering includes native ads that look like user posts, but are highlighted as promoted. Those are created by brands, not users. The bulk of the company's ad revenue comes from desktop, not mobile, according to Reddit, but executives declined to discuss revenue figures in greater detail.

Growing up to be as big as Facebook
When Mr. Huffman and Mr. Ohanian cofounded Reddit in 2005 the two didn't create a business plan because they didn't think they needed one. In fairness, both were 22 at the time and when Conde Nast acquired their company for an undisclosed amount in 2006, the two felt they hand swindled the publishing giant, according to Mr. Huffman.

But much has changed since then. Reddit spun out from Conde Nast in 2012 and now operates independently, though Conde parent Advance Publications is still the largest shareholder. Today, the company has more than 130 employees, up from 60 nearly two years ago. In July of last year, Mr. Huffman announced he would return as CEO after a tumultuous eight month stint under then interim CEO Ellen Pao.

The top brass at Reddit, including Mr. Huffman and Mr. Ohanian, say Reddit is currently in its "teenage years" in terms of growing its ad business.

"Comparing us to teenagers is totally accurate," Mr. Huffman said. "We are a developing company and we are taking this very seriously. We are learning to be adults here."

According to Reddit's aspirations, adulthood means being as big as Facebook, but the platform has quite some way to go. Reddit saw about 52 million users in the U.S. in June, up from 28 million from the previous year, according to ComScore. That's about a quarter of Facebook's U.S. audience last month of 209 million, ComScore said.

The company says about half of its traffic comes from the U.S., with the bulk of it originating from mobile, and that it can reach the billion-user mark by expanding its platform globally, something it has put little effort into doing until now.

"We have a much, much larger population in the world that we have not even begun to go after," said Mr. Ohanian, who returned along with Mr. Huffman last summer.

"Of course, Facebook and Reddit serve different needs for people," Mr. Huffman said. "There will never be total overlap so I don't think you have to choose one or the other. On Facebook, you have your real world identity and your friends, and that is important to people. But on Reddit you have all the other facets of your persona and you can talk about things you can't talk about with your friends and family."

Reddit's mobile app, released in April, is a big part of its plans to grow both its user base and revenue. It has generally received praise for its design and functionality, and may pave the way for a redesign of the desktop website, which has received few updates since 2005 and is often seen as a barrier to new users.

"I will say what was so nice on mobile is it allowed us to reimagine what Reddit could be visually," said Zubair Jandali, VP of sales at Reddit. "What we're probably going to do is let our desktop site take its cues from our mobile experience and attempt to mimic those parts of it that make sense for the platform."

"It is a long way of saying if you want to see what the future of Reddit desktop looks like, look at mobile," he added.